TreatiseTreatise

Drafting for Corporate Finance: Concepts, Deals and Documents (2nd Edition)

 by Carolyn E. C. Paris
 
 Copyright: 2014

 Product Details >> 

Product Details

  • ISBN Number: 9781402423130
  • Page Count: 580
  • Number of Volumes: 1
  •  

Drafting for Corporate Finance offers the legal, financial, business, accounting, and drafting information that lawyers must understand in preparing corporate finance documentation, especially as it relates to debt. It covers all the components of effective contract drafting, including:

  • basic structural issues, conditions precedent, representations, warranties and defaults
  • contract structure, housekeeping, insurance information, general business and financial covenants
  • debt and negative pledges, enforceability, security interest, true sale, and 10b-5 opinions
  • amendment, control, and refinancing provisions, and
  • risk-based review of contracts to eliminate compromising contract errors.

  Table of Contents
  Foreword to the Second Edition—Reflections on the Financial Crisis
  Preface
Chapter 1: Introduction
  • § 1:1 : What Is Corporate Finance, and Why This Book1
  • § 1:2 : What This Book Covers3
  • § 1:3 : What This Book Doesn’t Cover3
  • § 1:4 : Caveat5
Chapter 2: The Players
  • § 2:1 : The Company Perspective8
    • § 2:1.1 : Debt Versus Equity8
    • § 2:1.2 : Short-Term or Long-Term Debt9
    • § 2:1.3 : Illiquidity Versus Insolvency10
    • § 2:1.4 : Matching Liabilities to Assets; Managing Maturities10
    • § 2:1.5 : Market Conditions12
    • § 2:1.6 : Fixed-Rate Financing and Call Protection12
    • § 2:1.7 : Short-Term Pricing with Medium-Term Assurance of Access to Funds Through a Backstop13
    • § 2:1.8 : Nature of the Business14
    • § 2:1.9 : Maturity of the Business16
    • § 2:1.10 : Where Does the Company’s Cash Come From?17
    • § 2:1.11 : Implications for Lawyers18
  • § 2:2 : Investors and Intermediaries19
    • § 2:2.1 : Individual and Institutional Investors in the Public or Quasi-Public Markets; Underwriters and Placement Agents19
    • § 2:2.2 : Banks and Other Lenders in the Bank Loan and Private Placement Markets21
    • § 2:2.3 : Competition and Consolidation in the Banking Industry22
    • § 2:2.4 : Implications for Lawyers23
  • § 2:3 : Exchanges, Regulators and Industry Associations24
    • § 2:3.1 : Another Kind of Liquidity; Trading and Exchanges24
    • § 2:3.2 : Primary Regulators and Self-Regulatory Organizations26
    • § 2:3.3 : Industry Associations26
    • § 2:3.4 : Implications for Lawyers27
  • § 2:4 : Ancillary Players27
    • § 2:4.1 : Providers of Trustee and Administrative Services27
    • § 2:4.2 : Rating Agencies28
    • § 2:4.3 : Accountants29
    • § 2:4.4 : Financial Printers30
    • § 2:4.5 : Lawyers31
  • § 2:5 : The Evolving Market; Hedge Funds and Private Equity; Derivatives31
    • § 2:5.1 : The Status Quo Ante31
    • § 2:5.2 : Change Happens32
    • § 2:5.3 : Private Equity and Leveraged Buyouts33
    • § 2:5.4 : Hedge Funds33
    • § 2:5.5 : Derivatives, and Credit Derivatives in Particular34
    • § 2:5.6 : Playing a Game of Catch-Up36
  • § 2:6 : The M&A Connection36
    • § 2:6.1 : Financial Engineering and Financial Buyers36
    • § 2:6.2 : Assessment of the Target Company Debt37
    • § 2:6.3 : The Acquisition Debt38
    • § 2:6.4 : Bridge Loans, PIK, Staple or Stapled Financing . . . Innovation Is the Rule39
    • § 2:6.5 : Implications for Lawyers41
Chapter 3: The Instruments
  • § 3:1 : Review of the Basic Terms43
    • § 3:1.1 : Scheduled Maturity; Mandatory Repayment; Optional Repayment; and Call Versus Non-Call43
    • § 3:1.2 : Yield and Coupon; Yield and Price; Accrual; Fixed Rate Versus Floating Rate; Margin and Spread44
    • § 3:1.3 : Rating47
  • § 3:2 : Plain Vanilla Finance48
    • § 3:2.1 : Common Stock48
    • § 3:2.2 : Preferred Stock48
    • § 3:2.3 : Convertible Debt49
    • § 3:2.4 : Commercial Paper49
    • § 3:2.5 : Bank Debt—Revolving Credits51
    • § 3:2.6 : Bank Debt—Letters of Credit52
    • § 3:2.7 : Bank Debt—Term Loans55
    • § 3:2.8 : Private Placement Debt55
    • § 3:2.9 : Public or Rule 144A Debt55
  • § 3:3 : Complex Finance56
    • § 3:3.1 : Structured Finance56
    • § 3:3.2 : Derivatives59
    • § 3:3.3 : Financial Engineering and Rule Arbitrage; Issues for Lawyers61
Chapter 4: Accounting Matters
  • § 4:1 : Financial Statements63
  • § 4:2 : The Balance Sheet and What’s Not on It66
  • § 4:3 : The Income Statement; LIFO and FIFO72
  • § 4:4 : EBITDA74
  • § 4:5 : How the Financial Statements Fit Together75
  • § 4:6 : Consolidation; Minority Interests; Equity Accounting77
  • § 4:7 : Interplay of Consolidation Concerns and Off-Balance-Sheet Financing78
  • § 4:8 : How Financial Statements and Financial Reality Can Diverge78
Chapter 5: Bankruptcy—Rules of the Endgame
  • § 5:1 : Priorities of Recovery81
  • § 5:2 : Fraudulent Conveyance83
  • § 5:3 : Preference85
Chapter 6: The Issuer and the Obligation: Recourse, Ranking, Rights, and Remedies
  • § 6:1 : Identify the Obligor90
    • § 6:1.1 : Who’s on the Hook?90
    • § 6:1.2 : What’s in a Name?90
    • § 6:1.3 : What Type of Legal Entity?91
    • § 6:1.4 : What Is Non-Recourse Financing?92
  • § 6:2 : Debt or Equity or Something Else?92
  • § 6:3 : Secured or Unsecured?93
    • § 6:3.1 : Benefits of Security93
    • § 6:3.2 : Terminology; Negative Pledges; Equitable or Constructive Liens94
    • § 6:3.3 : Nothing Short of Perfection Will Do94
    • § 6:3.4 : Types of Collateral95
    • § 6:3.5 : Which Rules Apply?96
    • § 6:3.6 : Need for Careful Review; Key Defined Terms96
    • § 6:3.7 : A Note on Stock Pledges97
    • § 6:3.8 : What About Proceeds?97
    • § 6:3.9 : Preference Risk98
    • § 6:3.10 : In a Troubled Credit Situation98
    • § 6:3.11 : Roles of Collateral Trustee, Custodian, or Servicer99
    • § 6:3.12 : Sharing Collateral99
    • § 6:3.13 : Consistency with Debt Agreements; Release of Collateral100
  • § 6:4 : Senior or Subordinated?101
    • § 6:4.1 : Subordination Is Contractual, Not an Absolute Priority101
    • § 6:4.2 : The Payover Provision; Obligations of the Issuer Unaffected102
    • § 6:4.3 : Definition of Senior Debt; Tiers of Subordinated Debt103
    • § 6:4.4 : The Credit Agreement Debt104
    • § 6:4.5 : Designated Senior Debt, Payment Blockage and Delay on Acceleration105
    • § 6:4.6 : Anti-Layering106
    • § 6:4.7 : Terms That Can Frustrate Subordination106
    • § 6:4.8 : Guarantees of Subordinated Debt107
    • § 6:4.9 : When Subordinated Debt Is Secured; Second Lien Debt107
    • § 6:4.10 : What Conclusions Can Be Drawn?110
Chapter 7: Beyond the Issuer: Corporate Structure Issues
  • § 7:1 : Structural Subordination113
    • § 7:1.1 : Structural Subordination113
    • § 7:1.2 : Pledge of Intercompany Loans; Upstream Guarantees115
    • § 7:1.3 : Stock and Debt of Subsidiaries116
  • § 7:2 : Subsidiaries—Presumptively Within the Credit Group117
    • § 7:2.1 : Wholly Owned Versus Non-Wholly Owned Subsidiaries; Preferred Stock117
    • § 7:2.2 : Restricted Versus Unrestricted Subsidiaries118
    • § 7:2.3 : U.S. Versus Non-U.S. Subsidiaries119
    • § 7:2.4 : Material or Significant Subsidiaries120
    • § 7:2.5 : Single-Purpose or Special-Purpose Subsidiaries120
  • § 7:3 : Non-Subsidiary Affiliates—Presumptively Outside the Credit Group121
    • § 7:3.1 : Upstream Affiliates121
    • § 7:3.2 : Sisters122
    • § 7:3.3 : Joint Ventures, Minority Interests, and the Like123
Chapter 8: Commitments, Conditions, Pricing, and Risk; Liquidity Support and Credit Support; Credit Derivatives
  • § 8:1 : Commitments, Conditions, Pricing, and Risk125
  • § 8:2 : Beyond the Issuer: Analyzing Levels of Credit Support129
  • § 8:3 : Liquidity Support129
  • § 8:4 : Credit Support and Credit Substitution130
    • § 8:4.1 : Guarantees130
    • § 8:4.2 : Non-Guarantee Credit Support?131
    • § 8:4.3 : Letters of Credit132
    • § 8:4.4 : Bond Insurance132
    • § 8:4.5 : Credit Derivatives?132
Chapter 9: A Deal in Time
  • § 9:1 : The Deal Life Cycle and the Role of the Lawyer136
  • § 9:2 : Understanding the Company and Its Financing Needs136
  • § 9:3 : Defining the Market and Instrument136
  • § 9:4 : Locating and Using Forms and Precedents137
  • § 9:5 : Preliminary Agreements—Term Sheets and Commitment Letters138
  • § 9:6 : Due Diligence, Detail, and the Preliminary Agreement140
  • § 9:7 : Drafting and Negotiation141
    • § 9:7.1 : The Drafting Process141
    • § 9:7.2 : Golden Rules of Document Drafting and Negotiation141
    • § 9:7.3 : How to Read a Contract142
    • § 9:7.4 : Negotiation and the Lawyer’s Role144
    • § 9:7.5 : Common Errors in Decision-Making144
  • § 9:8 : Closings147
    • § 9:8.1 : Good Closings147
    • § 9:8.2 : Typical Documentary Requirements149
    • § 9:8.3 : Potential Documentation Problems150
    • § 9:8.4 : Requirements in the International Context152
    • § 9:8.5 : Related Transactions and Simultaneous Closings152
  • § 9:9 : Opinions153
    • § 9:9.1 : Opinions Are Hard; Not Just a Word-Processing Exercise153
    • § 9:9.2 : The Basic Opinion155
    • § 9:9.3 : Conclusions About Legal Facts156
    • § 9:9.4 : Security Interest Opinions156
    • § 9:9.5 : True Sale and 10b-5 Opinions157
    • § 9:9.6 : Rules to Opine By157
  • § 9:10 : Post-Closing159
    • § 9:10.1 : Final Documents and Closing Sets159
    • § 9:10.2 : Post-Closing: Amendments, Waivers, and Questions of Interpretation (When to Call a Lawyer)160
Chapter 10: Contract Structure and Key Elements
  • § 10:1 : Overview162
  • § 10:2 : Title, Date, and Parties; References to Other Contracts163
  • § 10:3 : Successors and Assigns?164
  • § 10:4 : Conditions Precedent165
  • § 10:5 : The MAC Clause, Material Litigation, and Incipient Events of Default166
  • § 10:6 : Representations and Warranties169
    • § 10:6.1 : Representations As “Hidden Covenants”169
    • § 10:6.2 : Representations About the Unknown: Who Bears the Risk?170
    • § 10:6.3 : Misrepresentation Versus Inability to Make a Representation171
  • § 10:7 : Covenants171
    • § 10:7.1 : Affirmative Covenants, Negative Covenants, and Financial Covenants171
    • § 10:7.2 : Maintenance Versus Incurrence Tests172
    • § 10:7.3 : Principles of Covenant Design and Analysis172
    • § 10:7.4 : Related Definitions: How Important Are They?173
  • § 10:8 : Defaults174
    • § 10:8.1 : Default Versus Event of Default174
    • § 10:8.2 : Acceleration; the “Ipso Facto” Clause175
    • § 10:8.3 : Cross-Defaults175
    • § 10:8.4 : Judgment and Lien Defaults176
  • § 10:9 : General or “Miscellaneous” Terms177
  • § 10:10 : Definitions177
  • § 10:11 : Who’s Covered?178
  • § 10:12 : How Do the Provisions Work Together?178
Chapter 11: Housekeeping, Insurance, and Information Covenants
  • § 11:1 : Good Housekeeping181
  • § 11:2 : Insurance Covenants182
  • § 11:3 : Information Covenants183
Chapter 12: Debt and Liens (Negative Pledges)
  • § 12:1 : The Negative Pledge (Restriction on Liens)185
  • § 12:2 : The Construction of Negative Covenants186
  • § 12:3 : Equal and Ratable Clauses187
  • § 12:4 : Restrictions on Sale-Leasebacks189
  • § 12:5 : Restrictions on Negative Pledges190
  • § 12:6 : Debt Covenants190
  • § 12:7 : Restrictions on Debt of Subsidiaries191
  • § 12:8 : The Priority Debt Package192
Chapter 13: General Business Covenants
  • § 13:1 : Purposes193
    • § 13:1.1 : Preserving the Identity of the Obligor and the Source of Repayment194
    • § 13:1.2 : Reducing Risk195
    • § 13:1.3 : Controlling the Use of Cash195
  • § 13:2 : By Type of Transaction or Activity195
    • § 13:2.1 : Mergers and Asset Sales195
    • § 13:2.2 : Restricted Payments198
    • § 13:2.3 : Investments199
    • § 13:2.4 : Line of Business200
    • § 13:2.5 : Capital Expenditures200
    • § 13:2.6 : Acquisitions?201
    • § 13:2.7 : Leases201
    • § 13:2.8 : Guarantees and Contingent Obligations202
    • § 13:2.9 : Assignment of Receivables202
    • § 13:2.10 : Transactions with Affiliates203
    • § 13:2.11 : Other204
  • § 13:3 : Constructing a Multi-Covenant Basket205
  • § 13:4 : Cross-References to Ensure Consistent Treatment205
  • § 13:5 : Change of Control Provisions and Definitions205
Chapter 14: Financial Covenants
  • § 14:1 : Lawyers Should Not Be Afraid of Financial Covenants207
  • § 14:2 : Correcting Toward Cash and Fair Value208
  • § 14:3 : Maintenance Versus Incurrence Tests (Again); Historical Versus Adjusted or Pro Forma208
  • § 14:4 : Coverage Versus Balance Sheet Tests; Timing Questions209
  • § 14:5 : Coverage Tests210
    • § 14:5.1 : The Numerator211
    • § 14:5.2 : EBITDA211
    • § 14:5.3 : The Denominator211
    • § 14:5.4 : Depreciation and Capital Expenditures212
  • § 14:6 : Leverage Ratio of Debt to Cash Flow213
  • § 14:7 : Balance Sheet Tests214
    • § 14:7.1 : Net Worth214
    • § 14:7.2 : Balance Sheet Leverage Test215
  • § 14:8 : Minimum Operating Results215
  • § 14:9 : Liquidity and Working Capital Tests216
  • § 14:10 : Excess Cash Flow Sweeps216
Chapter 15: Amendments, Waivers, and Control Provisions
  • § 15:1 : Amendments and Waivers217
    • § 15:1.1 : Level of Consent Required217
    • § 15:1.2 : Can the Obligor Vote?219
    • § 15:1.3 : Multi-Series or Multi-Tranche Agreements219
    • § 15:1.4 : Banks and Bondholders That Do Not Go Along221
  • § 15:2 : Amendment Versus Waiver; Form of Amendment222
  • § 15:3 : Shared Collateral; Intercreditor Agreements; Standstill Agreements224
  • § 15:4 : Analyzing Control Provisions225
    • § 15:4.1 : A Common Apparent Anomaly225
    • § 15:4.2 : Trading of Loans and Bonds, and the Relevance to Control225
    • § 15:4.3 : How to Review Control Provisions226
Chapter 16: Risk-Based Review; Transactions Analysis
  • § 16:1 : Spend Your Time Wisely230
  • § 16:2 : How to Deal with Boilerplate and Other Standard Provisions231
  • § 16:3 : Recommendations and Questions for Risk-Based Review232
    • § 16:3.1 : Party and Client Identification232
    • § 16:3.2 : Correspondence to Term Sheet233
    • § 16:3.3 : Closing Documents; Disclosure Schedules; Side Agreements; the Closing Set233
    • § 16:3.4 : Opinions234
    • § 16:3.5 : Timing, Risk, Commitments, and Conditions; Continuing or Repeating Representations235
    • § 16:3.6 : Complex Calculations and Tax Provisions235
    • § 16:3.7 : Security235
    • § 16:3.8 : Interrelatedness and Consistency Generally Within the Financing236
    • § 16:3.9 : How Different Financings Work Together237
    • § 16:3.10 : Credit Support or Liquidity Support?238
    • § 16:3.11 : Covenants Dealing with Securitization and Derivatives238
    • § 16:3.12 : Definition of the Corporate Group; Definitions of Affiliates and Control239
    • § 16:3.13 : Adverse Developments—Stress Testing239
    • § 16:3.14 : M&A Scenarios240
    • § 16:3.15 : Maintaining Flexibility: Amendments, Waivers, and Refinancing Options240
  • § 16:4 : Transactions Analysis at the Margin240
Chapter 17: Best Practices
  • § 17:1 : Drafting As a Professional Skill243
    • § 17:1.1 : Cross-References244
    • § 17:1.2 : Consequential and Conforming Changes244
    • § 17:1.3 : Working with Precedent245
    • § 17:1.4 : Excessive Generality and Too Much Specificity; Over-Engineering246
    • § 17:1.5 : Identifying and Correcting Ambiguity; Vagueness247
    • § 17:1.6 : Logical Completeness and Correctness; Speculative Worlds?248
    • § 17:1.7 : Over-Drafting248
    • § 17:1.8 : Too Many Words249
    • § 17:1.9 : Good Definitions249
    • § 17:1.10 : Provisions in Related Documents251
    • § 17:1.11 : Lists251
  • § 17:2 : Drafting Disclosure of Contract Terms251
    • § 17:2.1 : Where the Contract Is Relevant but Is Not the Main Event251
    • § 17:2.2 : For the Selling Document for the Debt252
    • § 17:2.3 : In Regular Disclosure for Public Companies?252
  • § 17:3 : Levering Technology—Possibilities and Pitfalls; Documents Handling and Retention252
  • § 17:4 : Lessons of Enron254
  • § 17:5 : Stay Informed, Be Engaged, Live Long, and Prosper257
Appendix A: Notes, Resources and Sample Language
Appendix B: Technical Drafting Checklist
Appendix C: Indicative Terms for Bank Debt and Public Debt, Investment Grade Versus Non-Investment Grade
Appendix D: Newco Goes to Wall Street—8½ Balance Sheets
Appendix E: Diary of a Liquidity Crisis: Enron’s Last Days
  Index

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